COMMENTARY: Canada’s Economic Troubles Began Long Before Trump’s Tariffs

By Grady Munro and Jake Fuss

Amid the trade negotiations between Canada and the United States, and U.S. tariffs and retaliatory counter-tariffs from Canada, it’s possible that many Canadians feel Canada’s economic problems started with the re-election of President Donald Trump. And there’s no denying that U.S. tariffs (alongside the retaliation by the Carney government) create real economic pain for Canadians and their families.

But as we navigate these troubled waters, Canadians should remember that Canada’s economic troubles began long before the current breakdown in trade relations.

A new study compares economic performance in Canada and the U.S. over the first quarter of the 21st century to examine the relative economic success and prosperity of Canadians. There’s no one single measure that can fully capture overall economic performance, so the study examines a variety of measures related to living standards, incomes, investment, productivity and employment. Unfortunately for Canadians, Canada has underperformed across every one of these indicators.

Looking first at gross domestic product (GDP) per person—which measures the total value of all goods and services produced in the economy on a per-person basis, and serves as an indicator of individual living standards—Canada stood at $48,076 in 1999 compared to $58,842 in the U.S. (all dollar values are expressed in inflation-adjusted Canadian dollars). In other words, U.S. living standards were $10,766 higher per person before the turn of the century. By 2024 (the latest year of comparable data), per-person GDP had grown to $59,529 in Canada and $83,286 in the U.S.—meaning the gap in individual living standards between the two countries had more than doubled to $23,757.

Clearly, the data show that U.S. living standards have improved considerably more than Canadian living standards. But this was not a foregone conclusion. In fact, from 1999 to 2014, Canada modestly outperformed the U.S. as per-person GDP grew 19.9 per cent in Canada compared to 17.8 per cent in the U.S. But in the decade following 2014, Canada fell behind, as per-person GDP grew a dismal 3.2 per cent over the period compared to 20.1 per cent growth in the U.S.

The other measures of economic growth largely follow this same trend.

For median employment income—median meaning half of workers earn more, half earn less—Canadians went from earning $32,580 in 2010 (the earliest year of comparable data) to $37,361 in 2024 (a 14.7 per cent increase). Median employment income in the U.S. increased from $38,706 in 2010 to $46,024 in 2024 (an 18.9 per cent increase). But again, median employment income growth in Canada actually outpaced the U.S. from 2010 to 2014 (a 5.2 per cent increase vs. a 0.5 per cent decline, respectively) before falling significantly behind following 2014.

It’s a similar story with business investment, which equips workers with the tools and technology they need to produce more/higher quality goods and services. On a per-worker basis, businesses in Canada invested 90 cents for every dollar invested in the U.S. in 2007 (the earliest year of comparable data). By 2014, Canadian businesses were still investing 87 cents (per worker) for every dollar invested in the U.S. But in the years following 2014, investment plummeted and in 2024 Canadian businesses invested just 54 cents per worker for every dollar invested by American businesses.

The study also examines labour productivity or output per hour worked—a key driver of income growth—and finds that productivity increased at more than twice the rate in the U.S. (67.9 per cent) compared to in Canada (26.7 per cent) from 1999 to 2025.

Finally, the study finds that from 1999 to 2024, government-sector employment (which is ultimately paid for by taxes extracted from the private sector) outpaced private-sector employment in Canada. As a result, private-sector employment as a share of total employment fell in Canada from 81.2 per cent in 1999 to 78.5 per cent in 2024. Conversely, the private sector in the U.S. outgrew the government sector (in terms of employment) over that same period.

Taken together, these results clearly show that Canadians are less prosperous today relative to our southern neighbours than we were at the turn of the 21st century. But even more crucial is that we only began to really fall behind since 2014, as prior to 2014 Canadian prosperity kept pace with (or in some cases exceeded) that of the U.S.

This latter finding offers the clearest lesson for how Canada might address its long-standing economic failings while managing the current disruptions in U.S. trade.

While the first signs emerged in some provinces in the early 2000s, 2014/2015 marked the culmination of a dramatic shift in how Canadian governments managed fiscal and economic policy. In the late 1990s and for much of the first decade of the 2000s, there was a policy consensus (at both the federal and provincial levels) centred around balanced budgets, declining debt, smaller and smarter government spending, and competitive taxes. This combination of policies helped create a stable environment that supported entrepreneurship and investment, and contributed to the strong economic performance in the years leading up to 2014.

Despite this economic success, governments across Canada gradually moved away from these policies and by 2014-2015 had largely abandoned this consensus in favour of increased government spending/borrowing, rising debt, greater government involvement in the economy, more burdensome regulation and higher taxes. This corresponded with a marked decline in Canada’s overall economic performance post-2014.

Without a doubt, the ongoing trade dispute with the U.S. poses a real threat to Canada’s economy and the prosperity of Canadians. But we can’t let this obscure the fact that Canada’s economy has already been faltering for years and won’t meaningfully improve unless we abandon the failed policies that have prevailed over the last decade and more.

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